In an earlierarticle, we have established a robust outlook for precious metals’ demand in the long term. With the outlook on demand remaining upbeat, an analysis of the supply side will complete a fundamental study of the metals space. Generally, oversupply kills any optimism that strong demand creates. What is of more importance to investors is the demand supply gap rather than demand alone, as this is the prime determinant of long term prices.

Supply is more influential in determining precious metals’ prices than any other commodity because of its scarcity. Simply put, gold is extremely rare to find and also whenever found, extraction and mining comes with significant costs. Global gold reserves (in the form of a natural resource) are constantly on the decline. The spike in mining activity over the past years has also led to the possibility of further supply deficit.

Interestingly, gold mined since 1900 accounts for over 80% of all-time gold production. Two-thirds of that volume of production has been in effect in the past 50 years alone. Demand for gold has been skyrocketing with the advent of newer investment instruments such as ETFs and derivatives. On the other hand, the supply side is starting to show signs of plateau-ing – a big boost for the long term prospects of gold as an investment avenue.

Our study of the supply side supports the bullish view of precious metals that is apparent from healthy demand. Current trends portend a flat supply for gold and silver compared to the past few years. Production of platinum and palladium will likely plummet further from current levels, creating a significant gap between demand and supply.

Palpable decline in gold production despite China’s highs

Declining mine production has been the primary concern for the precious metals

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